DUNA HOUSE HOLDING NYRT.

Transcription

1 CONSOLIDATED BUSINESS REPORT ON THE 2018 H1 ACTIVITIES OF THE GROUP

2 1. Group profile A Duna House Holding Nyrt. hereinafter referred to as "Company" or "Group" was founded in 2003; its main activity are real estate and loan brokerage. It has been a leading service provider in the services sector, in particular, in the real estate and financial services sector, in Hungary for years now. The Group s flagship is a national network of real estate agencies, which started operating in Now it employs over 1,400 persons serving customers. By acquiring Metrohouse Group in April 2016, Duna House Group entered the Polish market. Through the acquisition of three Prague headquartered companies in September 2016, it also entered the real estate market in the Czech Republic. The Company s registered seat is at 1016 Budapest, Gellérthegy u Principal activities: selling and operating franchise systems real estate agency services loan brokerage insurance brokerage real estate appraisal and related estate agency services energy certification and related estate agency services real estate management buying and selling of own real estate residential real estate fund management real estate development 1.1 Consolidated companies As a Subsidiary Name: address 30 June December 2017 Duna House Biztosításközvetítő Kft Budapest, Gellérthegy u % 100% Hitel Centrum Kft Budapest, Gellérthegy u % 100% DH Projekt Kft Budapest, Gellérthegy u % 100% Duna House Ingatlan Értékbecslő Kft Budapest, Gellérthegy u % 100% Duna House Franchise Kft Budapest, Gellérthegy u % 100% Energetikai Tanúsítvány Kft Budapest, Gellérthegy u % 100% Superior Real Estate Kft Budapest, Gellérthegy u % 100% Home Management Kft Budapest, Gellérthegy u % 100% REIF 2000 Kft Budapest, Gellérthegy u % 100% GDD Commercial Kft Budapest, Gellérthegy u % 100% SMART Ingatlan Kft Budapest, Gellérthegy u % 100% Impact Alapkezelő Zrt Budapest, Gellérthegy u % 100% Home Line Center Kft Budapest, Gellérthegy u % 100% Akadémia Plusz 2.0 Kft Budapest, Gellérthegy u % Hitelalkusz Közvetítő Kft Budapest, Gellérthegy u % 100% Metrohouse Franchise S.A Warszawa, Zelazna 28/30 Polska (Poland) 100% 100% 1

3 Metrofinance Sp. z.o.o Warszawa, Zelazna 28/30 Polska 100% 100% (Poland) Metrohouse S.A Warszawa, Zelazna 28/30 Polska 100% 100% (Poland) MyCity Residential Development Kft Budapest, Gellérthegy u % 100% Pusztakúti 12. Kft Budapest, Gellérthegy u % 100% Reviczky Kft Budapest, Gellérthegy u % 100% Duna House Franchise s.r.o Praha 4, Michelská 300/60 80% 80% Duna House Hypoteky s.r.o Praha 4, Michelská 300/60 80% 80% Center Reality s.r.o Praha 4, Michelská 300/60 80% 80% As a jointly managed undertaking Name: address: 30 June December Budapest, Hunor utca 24 Kft. 50% 50% Gellérthegy u Markets and economic environment 2.1 Real estate market The Hungarian real estate market continued to grow in 2018 H1. According to an estimate by Duna House Group, the total number of transactions exceeded 77,000 in 2018 H1, up by 4% on a year earlier. The data published by the Group in the Duna House Barométer reveal that real estate prices reached another peak in Hungary. According to the data provided by the Polish Statistical Office, in 2017, the number of residential property transactions in the secondary real estate market exceeded 186,000, translating into an annual 7% rise; 1 however, the number of the transaction as a proportion of the population suggests further growth in the years to come. No objective public data is available on trends in the real estate market and the residential, in particular, in Czech Republic. 2.2 Credit market Data published by the National Bank of Hungary reveal that there was a 35.6% year on year rise in the residential loan market in Hungary in 2018 H1, translating into close to HUF 400 billion borrowed by households. 78% of the new loans were loans with interest fixed for one or more years. 2 Residential lending took off in Poland in A 13% rise in 2017 was followed by a 17% one in 2018 H1. 1 Source: infrastructure/municipal infrastructure/real estate sales in 2017,7,1.html 2 Source: MNB: adatok informaciok/adatok idosorok/xi deviza penz es tokepiac 2

4 3. The Group s financial and equity situation 3.1 Income Statement data in HUF thousands Net sales revenues 4,502,670 2,282,831 Other operating income 185,369 65,508 Total income 4,688,039 2,348,339 Variation in self manufactured stock 236, ,760 Material costs 32,645 29,988 Goods and services sold 732, ,748 Services purchased 2,317,553 1,401,987 Personnel costs 327, ,601 Depreciation and amortisation 44,745 40,343 Other operating charges 77,398 53,296 Operating costs 3,296,176 1,929,203 Operating profit/loss 1,391, ,136 Financial revenues 27, ,933 Financial expenses 39,112 24,405 Profit of participations valued with the equity method 10,899 87,619 Profit before taxation 1,369, ,283 Income taxes 199,845 98,242 Taxed profit 1,169, ,041 Source: the Company's audited and non-audited IFRS annual and semi-annual accounts The Company s income rose by a total of 100% relative to Within that net sales grew by 97% representing HUF 2,219 million in excess income. Operating costs rose significantly by approximately 71%, thus, we closed the first half of the 2018 business year by having to post HUF 2,306 million in additional costs relative to the previous year. These higher costs were attributable to the performance of MyCity Residential Development Kft. and its subsidiaries. HUF 236,176 thousand stated as variation in self manufactured stock counterbalances the costs included in the direct costs of the residential projects. The Company s tax liability comprises corporate tax and business tax liability. The combined amount of actual and deferred taxes due on 2018 H1 was HUF 200 million. Overall, the Company s taxed profit rose by 121% from HUF 554 million to HUF 1,170 million. Relative to the previous year, the following changes materialised in the Group s sales revenue structure: 3

5 Revenue type Income by the investment 1,847,678 20,478 Income from the brokerage of financial products 1,071, ,013 Income by the own office 763, ,275 Income by the franchise 622, ,339 Income by the related services 197, ,509 Income pertaining to all the s ,784 Total 4,502,670 2,282,830 Source: the Company's audited and non audited IFRS annual and semi annual accounts The HUF 2,219,839 thousand rise compared with the benchmark period was due to higher sales in the investment (HUF 1,827,200 thousand), the financial product brokerage (HUF 195,737 thousand) and the franchise (HUF 62,798 thousand). Segment income statement The Group s strategic decisions are made by the Board of Directors. Therefore, when determining the s during the compilation of these financial statements, the management relied on the statements prepared for the Board of Directors. 4

6 Group million HUF Franchise Financial product brokerage Own office Related services Property investment Other and eliminations Consolidated total Net sales revenues 742 1, , ,503 Direct costs , ,337 Gross margin ,165 Indirect operating costs EBITDA ,436 Depreciation and amortisation EBIT ,392 Contribution margin ratio 89% 33% 43% 69% 45% 90% 48% EBITDA margin 18% 23% 7% 25% 52% 7% 32% EBIT margin 15% 23% 6% 25% 51% 9% 31% Group million HUF Franchise Financial product brokerage Own office Related services Property investment Other and eliminations Consolidated total Net sales revenues ,283 Direct costs ,011 Gross margin ,272 Indirect operating costs EBITDA Depreciation and amortisation EBIT Contribution margin 86% 39% 43% 65% 91% 50% 56% EBITDA margin 19% 29% 8% 5% 84% 1% 21% EBIT margin 14% 29% 7% 4% 63% 11% 18% Source: the Company's audited and non audited IFRS annual and semi annual accounts Unlike consolidated sales revenues, which rose by HUF 2,220 million, the contribution margin fell from 56% in 2017 H1 to 48%; however, gross contribution margin increased from HUF 1,272 million to HUF 2,165 million (a 41% rise). Indirect costs decreased by 11% from HUF 814 to HUF 729. The consolidated operating profit of the Group was HUF 1,392 million in 2018 H1, up by approximately 232% compared with HUF 419 million in the benchmark period. Based on the activities of DH six s can be distinguished: 5

7 (1) The franchise carries out the operation of the franchise system that runs under the Duna House, Smart Ingatlan and Metrohouse brands. The Company is the largest franchise network of real estate agents in Poland and Hungary. The establishment of a Duna House franchise network began in the Czech Republic in early (2) Own office : The Company also operates its own offices constituting parts of the Duna House, Smart Ingatlan and Metrohouse franchise networks. (3) Financial product brokerage : the Company Group as a financial broker offers a wide array of financial products to clients. (4) Segment of the services related to real estate: residential property management, residential property fund management, energy certification and appraisal services. (5) Taking advantage of its expertise in the real estate market, the Company made regular purchases of properties for investment purposes.. This includes the real estate development projects by MyCity. (6) Transactions within each were consolidated in the statement. The Other and eliminations" column includes the effect of the central services and filters out the transactions between the s. The performance of Impact Asset Management Zrt. that used to be presented in this has been presented in the of the services related to real estate since

8 3.2 Assets ASSETS Long term assets Intangible assets 76,835 82,656 Investment property 1,109,800 1,061,613 Land and buildings 524, ,484 Machinery and equipment 129, ,082 Goodwill 1,050,061 1,048,936 Investments in associated companies and joint 195, ,009 ventures Financial instruments 75,478 69,609 Deferred tax assets 162, ,322 Total long term assets 3,323,874 3,275,711 Current assets Inventories 3,512,479 3,399,013 Trade receivables 588, ,247 Amounts owed by related undertakings 146, ,099 Other receivables 173, ,766 Actual income tax assets 32,685 35,405 Prepayments and accrued income: 401, ,446 Cash and cash equivalents 1,548,921 1,428,343 Assets classified as held for sale 196,300 Total current assets 6,402,848 6,180,619 Total Assets 9,726,722 9,456,330 Source: the Company's audited and non audited IFRS annual and semi annual accounts Relative to 31 December 2017, the balance sheet total grew significantly by HUF 270 million (or 2.8%), attributable entirely to increase in current assets and, within that, inventories. The value of the inventories as at 30 June 2018 is the historical cost as at the balance sheet date of the residential property projects by MyCity. 7

9 3.3 Liabilities data in HUF thousands LIABILITIES Equity Subscribed capital 170, ,989 Capital reserves 1,375,096 1,490,536 Exchange reserves 19,352 27,518 Retained earnings 3,406,592 2,889,056 Total equity attributable to the parent company 4,971,469 4,579,100 Non controlling ownership interest (51,682) (48,581) Total equity: 4,919,788 4,530,519 Other long term liabilities Long term loans 2,319,825 1,271,662 Deferred tax liabilities 157, ,087 Total long term liabilities 2,477,090 1,415,749 Current Liabilities Short term loans and borrowings 170, ,748 Accounts payable 537, ,240 Liabilities to related companies 133, ,775 Other liabilities 938,955 1,140,882 Actual income tax liabilities 121,971 8,799 Accruals and deferred income 427, ,136 Liabilities directly linked to assets classified as held 5,481 for sale Total current liabilities 2,329,844 3,510,062 Total liabilities and equity 9,726,722 9,456,330 Source: the Company's audited and non audited IFRS annual and semi annual accounts The Company s share capital is HUF 170,429 thousand, which consists of 3,407,587 dematerialised ordinary shares of HUF 50 face value each and 1,000 preferential shares of HUF 50 face value each. A right of preferential dividend is associated with the employee shares issued by the Company. If the general meeting orders dividend payment for a particular year, the employee shares with preferential dividend give a right to dividend prior to the ordinary shares in the amount of 6% of the profit after tax stated in the consolidated annual report prepared according to IFRS (adjusted with the impact of the valuation of investment properties and the revaluation of participations involved in the consolidation with the equity method). The employee shares shall carry no rights to dividends other than as specified above. In particular, the employee shares do not entitle their holders to dividends in excess of the above 8

10 amount, or entitle their holders to dividends if, for the financial year concerned, the profit after tax according to the consolidated annual financial statement drawn up on the basis of IFRS is negative. The preferential right attached to employee shares is not cumulative, and the date of dividend payments is set by the Board of Directors. The maximum payable dividend for preferential shares was taken into account during the EPS calculation. Dividends in the amount of HUF 653,018 thousand was approved at the ordinary general meeting of the Company on 20 April In line with the above, holders of preferred shares are entitled to an amount equal to 6% of the taxed profit less the 2017 revaluation of investment property and the revaluation of the ownership shares involved in the consolidation with the equity method (i.e. HUF 47,791,000); holders of ordinary shares are eligible for HUF 605,227,000. Dividends on ordinary shares was paid in a lump sum on 19 June 2018; dividends on preferential employee shares is paid in four equal instalments quarterly. The first one was paid on 30 June

11 3.4 Consolidated Cash Flow Statement Consolidated Cash Flow Statement all data in HUF thousand unless otherwise stated OPERATING CASH FLOW After tax profit 1,169, ,041 Adjustments for: Interest received or paid is stated in the financing cash flow. 32,514 0 Reporting year depreciation 44,745 52,915 Deferred taxes 11,378 (19,306) Revaluation of investment property (90,900) (22,469) Badwill 0 (139,595) Shares measured with the equity method 10,899 87,619 Proceeds from the sale of instruments held for sale (53,000) 0 Changes in working capital Changes in inventories (82,018) (299,196) Changes in accounts receivable, other receivables and related (99,558) 150,031 receivables Changes in accrued and deferred assets (84,928) 29,505 Changes in accounts payable and related liabilities (385,457) (898,503) Other current liabilities and accruals and deferrals (88,755) 199,996 Changes in accrued and deferred liabilities 39,363 (14,765) Net operating cash flow 423,924 (319,727) Investment cash flow Tangible and intangible assets purchased (57,355) (104,257) Proceeds from the sale of tangible assets 51,846 2,459 Acquisition/Disposal of subsidiaries (excluding acquired liquid 250,000 (171,668) assets) Net investment cash flow 244,491 (273,466) Financing cash flow Bank loans/(repayment) 221, ,915 Capital contribution (117,000) 0 Dividend payments (620,377) (477,312) Interest received (paid) (32,514) (7,057) Net financing cash flow (547,995) (310,254) Net change in cash and cash equivalents 120,420 (903,448) Balance of cash and cash equivalents as at the beginning of the year 1,428,501 1,583,686 Balance of cash and cash equivalents as at the end of the year 1,548, ,238 Source: the Company's audited and non audited IFRS annual and semi annual accounts The Company s operating cash flow amounted to HUF 424 million in 2018 H1. 10

12 Improved investment cash flow was attributable to lack of transactions of a magnitude similar to last year's and the sale of one of MyCity's project companies. Dividend payment reduced financing cash flow by HUF 620 million, and the Company spent HUF 117 million on Treasury shares. The end of the period of cash and cash equivalents was HUF 869 million higher than what it was at the end of the benchmark period. 4. Environmental protection, social responsibility, employment policy The Company recycles some of the waste generated by it and collect packaging materials separately. Due to the nature of its business activity, the Company does not produce or store any hazardous material. Our Company s employment policy and ensuring its consistency between the individual countries are currently under way. The increase of the average statistical headcount compared with the benchmark period is attributable to an increase in the personnel of the Hungarian operation to 85, as well as the acquisitions in Poland and the Czech Republic. With the number of hours to be worked borne in mind, the average statistical headcount of the employees of the Polish subsidiaries rose from 14 in the benchmark period to 18. As regards the subsidiaries in the Czech Republic, there was 1 employee in 2018 H1. Of the HUF 327,571,000 balance of the personnel related expenses, the Polish and Czech subsidiaries share amounted to HUF 61,865, Information on equity and share capital Increase of the Company's equity At its meeting on 16 September 2016, the Company's AGM authorised an equity capital increase of HUF 1.5 billion at most in connection with the public offering of the Company s shares in October. After the public offering of the Company s shares, the Company Court quoting a procedural error refused to register the Company s equity capital increase in the total amount of HUF 18,939,350 in its ruling dated 10 December At their extraordinary meeting on 5 January 2017, the Company s shareholders passed a repeat resolution on the equity capital increase that was substantially identical with the first one. The Companies Court registered the capital increase in the register through decision no /50 dated 1 February The shares issued during the increase of the share capital were generated on 28 March

13 The composition of the Company s capital as at 30 June 2018: Type of shares Class of shares Share series Number of shares issued Nominal value per share Total nominal value ordinary shares A HUF 50 HUF employee share preferential shares B HUF 50 HUF Equity: HUF Number of voting rights attached to shares: Share series Number of shares issued Number of shares with voting rights Number of voting rights per share: Total number of votes A B Total Investors each with a significant direct or indirect ownership share in the Company s equity (including the shares based on a pyramid structure and the cross shares as well). The table below provides a summary of the shareholders each with a significant direct or indirect ownership share in the Company s equity, 3,with the shares based on a pyramid structure and the cross shares taken into account: Shareholder Name Number of shares held (number) Share in equity (%) Gay Dymschiz 1,346, % Doron Dymschiz 1,346, % AEGON Magyarország 191, % Befektetési Alapkezelő Zrt. Total equity 3,408, % 3 As at 30 June

14 7. Restrictions on the transfer of shares Restrictions on alienation on ordinary shares Shareholder Name Ferenc Máté Bernadett Szirtes Krisztián Fülöp Dr András Szabadházy Nir Bitkover Number of ordinary shares held (number) 27,000 1,091 1,746 1,091 1,746 32,674 Is alienation prohibited? yes yes yes yes yes Beginning of the period End of the period ,000 1,091 1,746 1,091 1,746 32, , , ,309 28, , , , , ,000 15, ,000 12, ,000 9, ,000 6, ,000 3,000 Restrictions on alienation Total 13

15 Restrictions on the alienation on preferred employee shares Shareholder Name Ferenc Máté Anikó Varga Bernadett Szirtes Dr András Szabadházy Zoltán Tóth Angelika Fóris Total Number of preferred employee shares held (number) Is alienation restricted? yes yes yes yes yes yes *Restriction s on alienation Beginning of the period End of the period indefinite**

16 8. Other issues regarding controlling powers and executive officers We declare that in respect of the following issues, apart from what is otherwise included in the business report, our Company has nothing more to report: Holders of issued ownership shares embodying special controlling rights and the presentation of such rights Control mechanism under any employee shareholder scheme where controlling rights are not exercised directly by employees Any restriction on voting rights (in particular, restrictions on the voting rights attached to the identified ownership share or on the number of votes, deadlines for exercising voting rights and the systems that help separate, in cooperation with the Company, the financial benefits associated with the ownership shares from the possession of the issued ownership shares) Rules governing the appointment and dismissal of executive officers and the modification of the Statutes The powers of executive officers, in particular, their powers to issue and repurchase shares Any material agreement to which the Company is a party which enters into force, is modified or terminates after a public purchase offer as a result of a change in the entrepreneur's control and their impact unless the disclosure of this information would harm the entrepreneur's lawful interests seriously if such information is not required to be made public by any other legal regulations Any agreement between the Company and its executive officer or its employee which stipulates compensation if the executive officer resigns or the employee quits, if the employment contract of the executive officer or the employee is unlawfully terminated or if the legal relationship is terminated because of a public purchase offer. 9. Risk management The Company's assets contain liquid assets, securities, trade and other receivables and other assets excluding taxes. The Group s resources include loans and borrowings, supplier and other payables, excluding the gains or losses arising from the revaluation at fair value of taxes and financial liabilities. The Group is exposed to the following financial risks: credit risk liquidity risk market risk This Chapter describes the Group s risks specified above, the Group s objectives and policies, measurement of the processes and risk management, as well as the capital management of 15

17 the Group. The Board of Directors has overall responsibility for the establishment, supervision and risk management of the Group. The objective of the Group's risk management policy is to identify and examine the risks the Group faces, to set the appropriate controls and to monitor the risks. The risk management policy and the system are reviewed so that it does reflect the changed market conditions and the Group's activities. Capital management The Group's policy is to preserve its equity in an amount that is sufficient for investor and creditor confidence in the future to sustain the future development of the Group. The Board of Directors seeks to maintain a policy whereby the Company undertakes a higher exposure arising from lending only against a higher rate of return, based on the advantages provided by a strong capital position and security. The Group s capital comprises net external funds and the Group s share capital ( the latter comprises registered capital, reserves and the ownership share of non controlling shareholders). The Group s capital management strives to ensure that the individual members of the Group are able to engage in their respective operations and maximise profit for the shareholders by striking a balance between loan capital and equity. Furthermore, it also strives to maintain an optimal capital structure in order to reduce capital costs. The Group also carries out monitoring which aims to ensure that its member companies capital structure complies with the local legal requirements. The equity risk run by the Company was not significant in 2018 H1. Lending risk Lending risk is risk arising from the failure of the borrower or partner to fulfil its contractual obligations, which in turn, results in a financial loss for the Group. Financial instruments that are exposed to credit risks may be long or short term placements, cash and cash equivalents, trade and other receivables. The book value of financial instruments shows the maximum risk exposure. The table below shows the maximum credit risk exposure of the Group on 30 June 2018 and 31 December

18 Trade receivables 588, ,247 Other receivables 173, ,766 Financial instruments 75,478 69,609 Cash and cash equivalents 1,548,921 1,428,501 Total 2,385,649 2,157,123 Liquidity risk Liquidity risk is the risk that the Group is unable to fulfil its financial obligations by the due date. Under the Group s liquidity management approach, there should always be sufficient liquidity available to cover the Group s obligations when they fall due under both standard and stressed circumstances without the Group s incurring unacceptable losses or risking its reputation. Market risk Market risk is the risk that a change in the market prices, such as exchange rates, interest rates and prices of investments in mutual funds will affect the Group s profit or the value of its investments made in financial instruments. Market risk management is aimed at managing market risk exposure and keeping it at an acceptable level while optimising profitability. Property development risks Of the risks typical of property development, the management focuses mainly on risks posed by increasing construction costs. The increase in the number of parallel projects implemented by the project companies poses a consistently rising liquidity risk to MyCity Group until bank financing is secured. The Group has concluded that, fundamentally, its profit much depends on key variables of a financial nature and on the interest rate risk, therefore, it has carried out sensitivity analyses in these key variables. The Group strives to ensure the reduction of the interest rate risk primarily by tying up liquid assets. The Group s currency risk is insignificant, primarily because in all three countries it carries out the sales and purchases in the given country s currency. The Group does not enter into currency hedging transactions. 17

19 10. Changes after the balance sheet date No significant event occurred between the balance sheet date and the date of the approval of these financial statements. 11. Declaration on corporate governance In light of its length and structural layout, we attach our declaration on corporate governance to this consolidated business report ( Responsible Corporate Governance Report ) as an annex. Our declaration on corporate governance constitutes an inseparable part of the consolidated business report. 12. Declaration on responsibility The Board of Directors of the Company prepared this business report on the basis of the data included in the consolidated accounts for 2018 H1 compiled in accordance with the International Financial Reporting Standards (IFRS) and to the best of their knowledge. As the accounts are unaudited, no independent auditor's report has been attached. These unaudited consolidated report gives a fair picture of the situation, development and performance of the issuer and the companies included in consolidation, setting out major risks and uncertainty factors affecting the remaining six months of the financial year. Budapest, 28 September 2018 Persons authorised to sign the (consolidated) business report: Doron Dymschiz Gay Dymschiz Ferenc Máté Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors 18